Business Faculty Member Discovers Secret to Small Companies’ Recovery, Success

A Notre Dame College faculty member has found the best way for small businesses to not only survive but also thrive in a post-recession─or any─economy is to invest in relationships rather than capital.

Vincent J. Palombo, DBA, assistant professor of business administration, has determined that by building personal connections along the value chain–from securing raw materials to delivering the finished product or service–individual- and family-owned companies that can't afford to invest in marketing and fixed assets can still grow and sustain successful business.

Palombo spent seven years studying Northeast Ohio machine shops and small manufacturing companies, most with fewer than 20 employees, and many that have fallen on hard times. Through his research, he discovered large firms turn around following declines by changing their CEOs or spending on capital. Small companies, especially those that are family owned, maintain leadership and can't always afford to buy new buildings or expand equipment.

But they can build personal connections and provide individualized service better than bigger firms.

"Small companies don't have the finances to invest in growth, so the best way for them to recover and improve business is to enhance the value chain by building off relationships with suppliers, employees and customers," Palombo said.

Palombo's evidence comes from his personal work experience as well as his research. Before becoming a college instructor, he spent nearly 25 years at Terrell Manufacturing Inc. in Strongsville, Ohio, where he was director of operations and part owner for six of those years. The company of about 25 employees machines custom-made products, specializing in hydraulic manifolds for the wind turbine industry, for companies like Bosch, Parker-Hannifin and Eaton corporations.

"Smaller firms can find out what specific challenges clients have and can be flexible enough to best determine how to meet them," Palombo said.

Case in point: Following Hurricane Katrina, a corporate oil rig had 50 employees unable to work while waiting on one specific manifold to be delivered from a large supplier–a process that was going to take up to three weeks, partially because the supplier was closed on weekends and could only ship on certain days. A small business owner building a relationship with corporate leadership learned about the dilemma, then empowered his team to pick up the part on a Friday afternoon, machine it on Saturday and drive it to a private jet at the airport on Sunday, which delivered the piece to the rig in a total of only three days.

According to Palombo, this personal approach to service creates a bond of goodwill and better business between the small company and, often, larger customer–a value that sustains them both through even the most unsure of economic times.

"Small companies can't afford to expand until they make more money. They can use relationships to build client bases–especially during or after a recession when finances might be tight for larger companies, too–and increase profits," Palombo said. "Then they can use those modest profit margins to grow slowly and more strategically and sustain that growth."

In the United States, small to medium organizations comprise 99 percent of businesses but are susceptible to closure–even in the best of economic times–because of limited resources. As a result of global outsourcing and the recent recession in the nation, the manufacturing industry has experienced severe declines, placing many small machine shops, in particular, at even greater risk. Nearly 85 percent of machine shops in the country employ fewer than 20 people.

Palombo's ethnographic study, "Exploring Turnaround Strategies for Small Machine Shops," was completed as part of his dissertation for a Doctor of Business Administration degree with a specialization in leadership he earned this fall from Walden University. He also has an MBA and bachelor's degree in business administration, both from Myers University.

Prior to teaching at Notre Dame, Palombo was an assistant professor of management at The Jack Welch Management Institute of Chancellor University.

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Since joining Notre Dame four years ago, Palombo has added several of his own courses, including entrepreneurship and operations management, to the business administration management major. Every semester he brings in entrepreneurs, especially from women-owned businesses, to speak to students about starting their own companies. See how Palombo inspired one of his students' business ventures on page 14.